Dell in a tight spot with results on deck

SAN FRANCISCO (MarketWatch) — Dell Inc. is gearing up for what could be the toughest, and trickiest, earnings report in the PC maker’s history.

Dell will post results for its fourth fiscal quarter after the closing bell on Tuesday, at a time when $24 billion bid led by founder and CEO Michael Dell to take the company private is under fire from shareholders who feel that the proposal to sell the company for $13.65 a share is too low.

Wall Street is already predicting a drop in both earnings and sales for the period. Less clear is how the results being reported on Tuesday will affect the buyout process — and whether the company will address the deal at all in its conference call after the closing bell.

Analysts polled by FactSet on average expect Dell to post a profit of 39 cents a share on revenue of $14.12 billion. That compares with a profit of 51 cents a share, on revenue of $16.03 billion in the year-earlier period.

Either way the report goes, some analysts say, Dell is in a tough spot.

“He’s in a bit of a pickle,” White said. “If you come out with some horrible outlook, or a horrible discussion about end-markets, it will be looked upon as sandbagging so you can get the deal done.”

On the other hand, he said that if the results are positive, “people would say, ‘Pay me more, then. Things are good.’”

Michael Dell is not typically a major presence on the company’s earnings calls; that duty has usually fallen to CFO Brain Gladden. But Dell may face some pressure to say more this time around. White of Topeka said investors might think he is “hiding” if he doesn’t participate in the call.

However, Bernstein Research analyst Toni Sacconaghi doesn’t think Michael Dell will take part in the call, adding in a note on Friday that the company is also unlikely to provide annual guidance, despite the start of a new fiscal year.

“At the margin, stronger than expected results could further fuel cries for a higher leveraged buyout price, while weaker than expected results could add incremental support for the deal from shareholders,” Sacconaghi wrote.

Raymond James analyst Brian Alexander said he is not expecting an “upside to consensus” given PC sales data reported by firms such as Gartner and IDC — both of which have painted a grim picture for the market.

“Clearly any upside to estimates could add leverage to dissenting shareholders’ position that the offer price is too low, so this makes that scenario even less likely,” Alexander told MarketWatch.

Most analysts also don’t expect Dell executives to discuss the buyout proposal that has been opposed by some shareholders including its two biggest investors, Southeastern Asset Management and T. Rowe Price. Southeastern Asset Management is pushing for a price of $24, arguing that the current deal undervalues the company.

That price is widely seen as too high, but there’s an emerging view that the deal price may edge higher. That makes Dell’s earnings results more significant than previous reports.

What the company reports, said Mizuho Securities analyst Abhey Lamba, “could impact what people are asking for.”

Dell has been reeling from a shrinking personal computer market, and uncertainty in the market for data center gear and services. Its bid to shift from being a low-margin seller of PCs to a corporate IT powerhouse focused on the more lucrative segments of the tech industry has meant lower sales.

But speculation on a plan to go private has also been a factor for the company’s business, some analysts say.

Jayson Noland, an analyst with Robert W. Baird, told MarketWatch that the buyout rumors which had been circulating for months before the formal announcement early this month, “have likely been a negative overhang to recent business trends, given the uncertainty of future strategic direction, service, support, investment, etc.”

Lamba of Mizuho Securities agreed, saying any weakness Dell felt “could be the result of the speculation” about a buyout deal. “If you’re a large customer, you have to go back and think about the future of Dell,” he added.

In fact, market uncertainty and the rumors have pushed Dell into a tough position that sent its stock falling to a 52-week low of $8.69 just in November.

But the fact that the shares fell so sharply just a few months ago and then rallied sharply amid speculation about a buyout only makes many shareholders restless.

“There’s all kinds of grassy knoll theories that will pop up,” White said. “It probably should not have gotten that low. They do have a good franchise. They have a loyal customer base.”

Dell in a tight spot with results on deck

By Benjamin Pimentel

SAN FRANCISCO (MarketWatch) — Dell Inc. is gearing up for what could be the toughest, and trickiest, earnings report in the PC maker’s history.

Dell will post results for its fourth fiscal quarter after the closing bell on Tuesday, at a time when $24 billion bid led by founder and CEO Michael Dell to take the company private is under fire from shareholders who feel that the proposal to sell the company for $13.65 a share is too low.

Wall Street is already predicting a drop in both earnings and sales for the period. Less clear is how the results being reported on Tuesday will affect the buyout process — and whether the company will address the deal at all in its conference call after the closing bell.

Analysts polled by FactSet on average expect Dell to post a profit of 39 cents a share on revenue of $14.12 billion. That compares with a profit of 51 cents a share, on revenue of $16.03 billion in the year-earlier period.

Either way the report goes, some analysts say, Dell is in a tough spot.

“He’s in a bit of a pickle,” White said. “If you come out with some horrible outlook, or a horrible discussion about end-markets, it will be looked upon as sandbagging so you can get the deal done.”

On the other hand, he said that if the results are positive, “people would say, ‘Pay me more, then. Things are good.’”

Michael Dell is not typically a major presence on the company’s earnings calls; that duty has usually fallen to CFO Brain Gladden. But Dell may face some pressure to say more this time around. White of Topeka said investors might think he is “hiding” if he doesn’t participate in the call.

However, Bernstein Research analyst Toni Sacconaghi doesn’t think Michael Dell will take part in the call, adding in a note on Friday that the company is also unlikely to provide annual guidance, despite the start of a new fiscal year.

“At the margin, stronger than expected results could further fuel cries for a higher leveraged buyout price, while weaker than expected results could add incremental support for the deal from shareholders,” Sacconaghi wrote.

Raymond James analyst Brian Alexander said he is not expecting an “upside to consensus” given PC sales data reported by firms such as Gartner and IDC — both of which have painted a grim picture for the market.

“Clearly any upside to estimates could add leverage to dissenting shareholders’ position that the offer price is too low, so this makes that scenario even less likely,” Alexander told MarketWatch.

Most analysts also don’t expect Dell executives to discuss the buyout proposal that has been opposed by some shareholders including its two biggest investors, Southeastern Asset Management and T. Rowe Price. Southeastern Asset Management is pushing for a price of $24, arguing that the current deal undervalues the company.

That price is widely seen as too high, but there’s an emerging view that the deal price may edge higher. That makes Dell’s earnings results more significant than previous reports.

What the company reports, said Mizuho Securities analyst Abhey Lamba, “could impact what people are asking for.”

Dell has been reeling from a shrinking personal computer market, and uncertainty in the market for data center gear and services. Its bid to shift from being a low-margin seller of PCs to a corporate IT powerhouse focused on the more lucrative segments of the tech industry has meant lower sales.

But speculation on a plan to go private has also been a factor for the company’s business, some analysts say.

Jayson Noland, an analyst with Robert W. Baird, told MarketWatch that the buyout rumors which had been circulating for months before the formal announcement early this month, “have likely been a negative overhang to recent business trends, given the uncertainty of future strategic direction, service, support, investment, etc.”

Lamba of Mizuho Securities agreed, saying any weakness Dell felt “could be the result of the speculation” about a buyout deal. “If you’re a large customer, you have to go back and think about the future of Dell,” he added.

In fact, market uncertainty and the rumors have pushed Dell into a tough position that sent its stock falling to a 52-week low of $8.69 just in November.

But the fact that the shares fell so sharply just a few months ago and then rallied sharply amid speculation about a buyout only makes many shareholders restless.

“There’s all kinds of grassy knoll theories that will pop up,” White said. “It probably should not have gotten that low. They do have a good franchise. They have a loyal customer base.”